SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
Commission File number 1-11700
HEMAGEN DIAGNOSTICS, INC.
_________________________________________________________________
(Exact name of Small Business Issuer as Specified in its Charter)
Delaware 04-2869857
_________________ ________________________________________
(State of Organization) (I.R.S. Employer Identification Number)
34-40 Bear Hill Road, Waltham, Massachusetts 02154
_________________________________________________________________
(Address of principal executive offices, Zip Code)
(617) 890-3766
_________________________________________________________________
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 month
and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
As of March 31, 1997 the issuer had 7,676,890 shares of
Common Stock, $.01 par value per share outstanding.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
_______________
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets;
March 31, 1997 and
September 30, 1996 2
Consolidated Statements
of Operations; three months
and six months ended
March 31, 1997 and 1996 4
Consolidated Statements
of Cash Flows; six months
ended March 31, 1997 and 1996 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 5. Other Information. 13
Item 6. Exhibits and Reports
on Form 8-K. 15
</TABLE>
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
_____________________
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
__________ _____________
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 468,358 $ 756,919
Short-term investments (Note B) 710,693 1,360,249
Accounts and other receivables,
less allowance for doubtful
accounts of $64,700 at March and
$53,800 at September 1,757,421 1,673,791
Inventories 3,744,186 3,178,180
Prepaid expenses and
other current assets 323,589 271,800
____________ ____________
Total current assets 7,004,247 7,240,939
Property and Equipment:
Fixed assets 4,832,729 4,473,413
Less accumulated depreciation 1,879,532 1,541,534
____________ ____________
2,953,197 2,931,879
Other assets 1,586,365 1,636,412
____________ ____________
$11,543,809 $11,809,230
============== =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
__________ _____________
<S> <C> <C>
Current Liabilities:
Accounts payable and
accrued expenses $ 1,162,575 $ 1,428,790
Current portion of
long-term debt 359,643 395,034
_____________ _____________
Total current liabilities 1,522,218 1,823,824
_____________ _____________
Long-term debt, less
current portion 399,406 562,672
_____________ _____________
Stockholders' Equity:
Preferred stock,
no par value - 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value
- 30,000,000 shares
authorized; issued and
outstanding: 7,676,890 at March
and 7,620,890 at September 76,769 76,209
Additional paid-in capital 13,230,196 13,132,575
Accumulated deficit (3,678,780) (3,780,232)
_____________ _____________
9,628,185 9,428,734
Receivable from stockholder (6,000) (6,000)
_____________ _____________
9,622,185 9,422,734
_____________ _____________
$11,543,809 $ 11,809,230
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 3,027,431 $ 2,124,660 $ 6,181,991 $ 3,666,704
License and contract revenue -- 10,000 -- 20,000
--------------------------------------------------------
3,027,431 2,134,660 6,181,991 3,686,704
Costs and expenses:
Cost of product sales 1,861,085 1,392,424 3,800,721 2,253,235
Research and development 248,145 179,991 462,261 323,425
Selling, general and administrative 858,794 891,973 1,780,092 1,504,652
--------------------------------------------------------
2,968,024 2,464,388 6,043,074 4,081,312
--------------------------------------------------------
Operating income (loss) 59,407 (329,728) 138,917 (394,608)
Other expenses, net (13,136) (159,859) (37,465) (299,544)
--------------------------------------------------------
Income (loss) before income taxes 46,271 (489,587) 101,452 (694,152)
Provision for income taxes -- -- -- --
--------------------------------------------------------
Net income (loss) $ 46,271 $ (489,587) $ 101,452 $ (694,152)
==========================================================
Net income (loss) per share $ 0.01 $ (0.11) $ 0.01 $ (0.18)
==========================================================
Weighted average shares outstanding 7,642,446 4,533,404 7,633,088 3,840,167
==========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) OF CASH AND CASH EQUIVALENTS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 101,452 $ (694,152)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 338,001 302,965
Changes in assets and liabilities net of
effect of acquisition of business:
Accounts and other receivables 143,194 17,202
Prepaid expenses and other current assets (47,010) 46,462
Inventory (377,860) (539,645)
Accounts payable and accrued expenses (566,496) 246,565
------------ ------------
Net cash used by operating activities (408,719) (620,603)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (100,734) (109,824)
Other assets 67,473 289,336
CPI purchase, net of cash (Note C) (395,480) --
RAI purchase, net of cash (Note D) -- (4,920,648)
Proceeds from (issuance of) short-term investments 649,556 (1,154,264)
------------ ------------
Net cash provided (used) by investing activities 220,815 (5,895,400)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance (payments) of long-term
debt, net (198,657) (610,219)
Repayment of note payable -- (382,584)
Proceeds from issuances of common stock 98,000 6,659,120
------------ ------------
Net cash provided (used) by financing activities (100,657) 5,666,317
------------ ------------
Net decrease in cash and cash equivalents (288,561) (849,686)
Cash and equivalents at beginning of year 756,919 1,333,067
------------ ------------
Cash and cash equivalents at end of period $ 468,358 $ 483,381
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. Reference should be made to the
financial statements and related notes included in the Company's
Form 10-KSB which was filed with the Securities and Exchange
Commission on or about December 30, 1996.
In the opinion of the management of the Company, the
accompanying financial statements reflect all adjustments which
were of a normal recurring nature necessary for a fair presentation
of the Company's results of operations and changes in financial
position for the three month and six month period ended March 31,
1997. Operating results for these periods are not necessarily
indicative of the results that may be expected for the year ending
September 30, 1997.
NOTE B - CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all investments with an original maturity
of three months or less to be cash equivalents. The Company
invests its excess cash in certificates of deposit. Accordingly,
the investments are subject to minimal credit and market risk.
All of the Company's investments are classified as available-for-
sale in accordance with Financial Accounting Standard No. 115. No
realized or unrealized gain or loss was incurred during the period.
NOTE C - ACQUISITION OF 872 MAIN STREET CORP (Formerly known as
Cellular Products, Inc.)
On November 1, 1996, Hemagen Diagnostics, Inc., through a wholly
owned subsidiary, completed the purchase of substantially all the
assets of Cellular Products, Inc., now known as 872 Main Street
Corporation ("872 Main Street"). 872 Main Street was operating
under the provisions of Chapter 11 of the United States Bankruptcy
Code. The sale of the assets by 872 Main Street was approved by
the Bankruptcy Court on October 3, 1996. 872 Main Street
manufactured biotechnology materials and assays for research and
for the manufacture of clinical diagnostic test kits. The Company
plans to continue the manufacture of the product line at the
facility formerly occupied by 872 Main Street in Buffalo, New York.
On November 1, 1996, the Company paid $400,000 in cash and issued
an unsecured promissory note (the "Note") agreeing to pay 872 Main
Street $200,000 on or before November 1, 1997. In addition to the
cash and the Note, the Company assumed approximately $112,000 of
post-bankruptcy liabilities.
The Company's business acquisition, based on estimated fair
values of assets acquired and liabilities assumed, involved the
following:
Fair value of assets acquired, other than cash
and cash equivalents: $695,757
Liabilities assumed: 300,277
Cash payments made: $395,480
NOTE D - ACQUISITION OF REAGENTS APPLICATIONS, INC.
The Company's business acquisition, based on estimated fair
values of assets acquired and liabilities assumed, involved the
following:
Fair value of assets acquired, other than cash
and cash equivalents: $5,246,993
Liabilities assumed: 326,345
Cash payments made: $4,920,648
NOTE E - NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128 ("FAS 128")
"Earnings Per Share", issued by the Financial Accounting Board, is
effective for financial statements for fiscal years ending after
December 15, 1997.
The effect of adopting FAS 128 has not yet been estimated. The
Company is required to adopt the disclosure requirements of FAS 128
during the year ending September 30, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains certain forward-looking statements that
are subject to risks and uncertainties including, without
limitation those risks set forth in the section entitled "Risk
Factors" in the Prospectuses contained in the Company's
Registration Statements on Form S-3, Commission File Nos. 33-80009
and 333-6147 (which sections are hereby incorporated by reference
herein). These risks and uncertainties could cause the
registrant's actual results in future periods to differ materially
from its historical results and from any opinions or statements
expressed in such forward-looking statements. Such forward-looking
statements speak only as of the date of this report, and the
Company cautions readers not to place undue reliance on such
statements.
Overview
The Company has historically concentrated its efforts on
developing, manufacturing and marketing medical diagnostic test
kits used to aid in the diagnosis of certain diseases. In the past
two years the Company has focused its expansion efforts on
synergistic acquisitions of companies, product lines and assets.
The Company and its subsidiaries presently have more than 100
different test kits available for general sale, over 90 of which
have received United States Food and Drug Administration ("FDA")
clearance for sale in the United States.
Results of Operations
The Three Month Period Ended March 31, 1997 Compared to the Three
Month Period Ended March 31, 1996
Revenues increased to approximately $3,027,000 from
approximately $2,135,000 (42%), primarily as a result of (i) sales
from the Company's March 1, 1996 acquisition of Reagents
Applications, Inc. ("RAI"), (ii) sales from the Company's November
1, 1996 acquisition of the assets of 872 Main Street Corp.
(formerly known as Cellular Products, Inc.) ("CPI" acquisition)
and, (iii) an increase in contract manufacturing sales to Carter-
Wallace.
Cost of product sales increased to approximately $1,861,000 from
approximately $1,392,000 (34%), due to the increase in sales. Cost
of products sales as a percentage of sales decreased to 61% from
66% due to a reduction in purchase accounting costs relating to the
acquisition of RAI.
Research and development expenses increased to approximately
$248,000 from approximately $180,000 (38%), primarily due to the
addition of RAI, VIRGO and Cellular Products, Inc. ("CPI") related
research and development expenses. The Company is currently
developing and completing studies related to FDA 510(k) submissions
for several new products. During the three month period ending
March 31, 1997, the Company received FDA clearance to market a test
to detect CMV infection in an ELISA format. On April 17, 1997, the
Company received FDA clearance to market a test to detect
Rheumatoid Factor in a serum protein immunoassay format.
Selling, general and administrative ("SG&A") expenses decreased
to approximately $859,000 from approximately $892,000 (4%),
primarily due to a reduction of public relations, financing
expenses and professional fees that were associated with the
acquisition of RAI during the prior fiscal year. Additionally,
SG&A expenses at Hemagen Diagnosticos Comercio Importacao e
Exportacao Ltd., ("HDC") a Brazilian limited liability company,
relating to staffing and operating its manufacturing facility in
Sao Paulo, Brazil decreased from last fiscal year. These decreases
were partially offset by the addition of RAI and CPI expenses.
SG&A expenses decreased as a percentage of revenues from 42% to 28%
due to the Company's utilization of its present infrastructure to
manage additional operations.
Net other expense decreased to approximately $13,000 from
approximately $160,000 due to a decrease in interest expense and a
one time expense related to the issuance of warrants during the
prior fiscal year. During the fiscal year ending September, 1996,
the Company converted notes in the aggregate amount of $1,550,000
into 1,550,000 shares of common stock. The Company also completed
an equity private placement offering which netted $6,410,000 in
March, 1996. The cash provided from this offering was used to
reduce the Company's long term debt, purchase RAI and CPI, and
increase working capital for the Company.
Net income was approximately $46,000 compared to a loss of
$490,000, primarily due to higher CPI, RAI Carter-Wallace and HDC
sales and a reduction in non-operating expenses and SG&A.
The Six Month Period Ended March 31, 1997 Compared to the Six Month
Period Ended March 31, 1996
Revenues increased to approximately $6,182,000 from
approximately $3,687,000 (68%), primarily as a result of (i) sales
from the Company's March 1, 1996 acquisition of RAI., (ii) sales
from the Company's November 1, 1996 acquisition of CPI and, (iii)
an increase in contract manufacturing sales to Carter-Wallace.
Cost of product sales increased to approximately $3,801,000 from
approximately $2,253,000 (69%) due to the increase in sales. Cost
of products sales as a percentage of sales were virtually unchanged
at 61%.
Research and development expenses increased to approximately
$462,000 from approximately $323,000 (43%), primarily due to the
addition of RAI, VIRGO and CPI related research and development
expenses. The Company is currently developing and completing
studies related to FDA 510(k) submissions for several new products.
During the six month period ending March 31, 1997, the Company
received FDA clearance to market tests to detect CMV, Lupus and
Rheumatoid Arthritis in ELISA formats. On April 17, 1997 the
Company received FDA clearance to market a test to detect
Rheumatoid Factor in a serum protein immunoassay format.
Selling, general and administrative expenses increased to
approximately $1,780,000 from approximately $1,505,000 (18%),
primarily due to the addition of RAI and CPI expenses. These were
partially offset by a reduction of public relations, financing
expenses and professional fees that were associated with the
acquisition of RAI during the prior fiscal year. Additionally,
expenses at HDC relating to staffing and operating its
manufacturing facility in Sao Paulo, Brazil decreased. SG&A
expenses decreased as a percentage of revenues from 41% to 29% due
to the Company's utilization of its present infrastructure to
manage additional operations.
Net other expense decreased to approximately $37,000 from
approximately $300,000 due to a decrease in interest expense and a
one time expense relating to the issuance of warrants during the
prior fiscal year. During the fiscal year ending September, 1996
the Company converted notes in the aggregate amount of $1,550,000
into 1,550,000 shares of common stock. The Company also completed
an equity private placement offering which netted $6,410,000 in
March, 1996. The cash provided from this offering was used to
reduce the Company's long term debt, purchase RAI and CPI, and
increase working capital for the Company (see Liquidity and Capital
Resources).
Net income was approximately $101,000 compared to a loss of
$694,000, primarily due to higher CPI, RAI, Carter-Wallace and HDC
sales and a reduction in non-operating expenses.
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating
requirements and growth primarily from the initial public offering
of its common stock, lease financing arrangements, cash flow from
operations and private placements completed in September 1995, and
March 1996.
On November 1, 1996 the Company, through its wholly owned
subsidiary, CPI, completed the purchase of substantially all the
assets of 872 Main Street Corp. (formerly known as Cellular
Products, Inc.) for $400,000 in cash and a $200,000 promissory note
payable on November 1, 1997. CPI is based in Buffalo, New York and
is a manufacturer of biotechnology materials and assays for
research and for the manufacture of clinical diagnostic test kits.
Its products are used in the growth and testing of retro viruses
and as a raw material by manufacturers of clinical diagnostic test
kits. The product mix includes enzyme oligonucleotide assays,
ELISA assays, monoclonal antibodies, recombinant growth factors,
viral lysates and bulk raw materials. The Company believes that
this acquisition will allow for better control of manufacturing
costs, and enhance the Company's research programs.
At March 31, 1997, the Company's working capital was
approximately $5,482,000 compared to working capital of
approximately $5,417,000 at September 30, 1996. This increase was
principally due to Company's operating gain in the period.
Inventory balances increased from approximately $3,178,000 on
September 30, 1996 to approximately $3,744,000 on March 31, 1997,
due to the purchase of CPI inventory and in support of increased
Carter-Wallace sales.
At May 1, 1997 the Company had capital finance arrangements with
two companies totaling approximately $708,000. The Company is
required to pay an average of $42,000 per month in the aggregate
(including interest) under these arrangements during fiscal 1997.
The arrangements run through fiscal 1998.
Contract Negotiations
The Company is in negotiations with several potential customers
for certain of its products. The contracts under negotiation each
involve substantial purchases over one or more years. If and when
the Company is able to finalize one or more of these contracts, and
if the terms are as presently being considered by management, then
the Company is optimistic that such contracts may have a material
favorable effect on its net income. The preceding forward-looking
statements are subject to the expressions of caution set forth at
the beginning of this Management's Discussion and Analysis.
Contemplated Stock Repurchase
The Company has cash resources which the Board of Directors
believes can be beneficially invested in the Company's own common
stock at current market prices. The Board of Directors has
authorized management to cause the Company to repurchase up to a
maximum of 300,000 shares of the Company's common stock, subject to
management's discretion regarding price, timing, and alternative
opportunities for use of capital. In management's discretion,
stock repurchases may be made in any amount up to the aggregate
maximum, and may be made from time to time and in open market or
private purchases. The authorization to repurchase stock expires
on April 30, 1998. This program is subject to applicable
securities laws.
Impact of Inflation
Domestic inflation during the last three fiscal years has not
had a significant effect on the Company's business activities.
Translation and transaction gains and losses between the Company
and its subsidiary in Brazil are expensed each period.
New Accounting Pronouncement
Statement of Financial Accounting Standards No. 128 ("FAS 128")
"Earnings Per Share", issued by the Financial Accounting Standards
Board, is effective for financial statements for fiscal years
ending after December 15, 1997. The new standard establishes
standards for computing and presenting earnings per share.
The effect of adopting FAS 128 has not yet been estimated. The
Company is required to adopt the disclosure requirements of FAS 128
during the year ending September 30, 1998.
<PAGE>
PART II - Other Information
Items 1 through 5: Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit 11 attached.
(b) Reports on Form 8-K. On January 10, 1997 the
Company filed a Form 8-K/A amending the
following items, financial statements, exhibits
or other portions of the 8-K filed on November
14, 1996.
1. Amended to include financial information
relating to the assets of 872 Main Street
Corp. purchased by the Company and the
Company's pro-forma financial information.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hemagen Diagnostics, Inc.
___________________________________
(Registrant)
May 14, 1997 /s/ Carl Franzblau
___________________________________
(Signature)
Carl Franzblau
Chief Executive Officer
May 14, 1997 /s/ William Franzblau
___________________________________
(Signature)
William Franzblau
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Title
11 Statement of Computation of per share net income
(loss).
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
STATEMENT OF PER SHARE NET INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ 46,271 $ (489,587) $ 101,452 $ (694,152)
___________ ___________ __________ ___________
Net income (loss) per share $ 0.01 $ (0.11) $ 0.01 $ (0.18)
___________ ___________ __________ ___________
Weighted average shares outstanding 7,642,446 4,533,404 7,633,088 3,840,167
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 468,358
<SECURITIES> 710,693
<RECEIVABLES> 1,757,421
<ALLOWANCES> 64,700
<INVENTORY> 3,744,126
<CURRENT-ASSETS> 7,004,247
<PP&E> 4,832,729
<DEPRECIATION> 1,879,532
<TOTAL-ASSETS> 11,543,809
<CURRENT-LIABILITIES> 1,522,213
<BONDS> 0
0
0
<COMMON> 76,769
<OTHER-SE> 9,545,416
<TOTAL-LIABILITY-AND-EQUITY> 11,543,809
<SALES> 3,027,431
<TOTAL-REVENUES> 3,027,431
<CGS> 1,861,085
<TOTAL-COSTS> 2,968,024
<OTHER-EXPENSES> 13,136
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,332
<INCOME-PRETAX> 46,271
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,271
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
